Sentinel
Scheduled contributions into a leveraged Nasdaq ETF, with a standing hedge.
Something stands guard over the position the whole time it is held.
Measured on contributions, so the return is an XIRR and is not comparable with the CAGR of the lump-sum strategies. Money contributed after a fall earns the recovery, which flatters any single figure. Read the drawdown alongside it.
This is the only strategy here measured on contributions, so its return is an XIRR and is not comparable with the CAGR figures on the other pages.
Contributions go in on a schedule and step up when the ETF is well off its recent high, so more capital arrives at lower prices without anyone deciding to buy the dip. A protective put is held the entire time. The hedge widens and lengthens as the account grows, because far-dated protection gets cheaper per unit the larger the position it covers. In this backtest the hedge paid for itself, which is the unusual part.
This strategy is not part of the model portfolio. It runs on monthly contributions rather than a lump sum, so blending its return against the others would count deposited cash as performance.
1Every month, contribute — and contribute more into a fall
On the first trading day of the month, compare the ETF with its highest close over the trailing undefined trading days.
- A normal month
- Buy $2,000
- A dip month, meaning >15% below trailing 60-day high
- Buy $4,000 instead
A fixed schedule tilted toward pullbacks. There is no forecast and no judgement call: the rule fires off the trailing high alone.
2Hold a protective put the entire time
Sized to cover the shares held, one contract per hundred shares, split-adjusted. The hedge changes shape once the account crosses $500,000, because far-dated protection costs less per unit of cover the larger the position it has to cover.
- While the account is under $500,000
- A put about 10% out of the money, about 90 days to expiry, rolled every quarter
- At or above $500,000, where it sits now
- A put about 25% out of the money, about a year to expiry, rolled once a year
The put is the floor. It pays if the ETF falls through the strike, and expires worthless if the ETF keeps rising — in which case the premium was the cost of having been covered. Rolling puts are taxable events, so this belongs in a tax-advantaged account.
3Never write calls against the position
- Covered calls
- Do not
Tested separately and rejected. Writing calls on a 3x ETF caps precisely the advances the strategy depends on, and the drag exceeded the premium collected in every variant tried.
What the hedge actually changed
| XIRR | Max drawdown | |
|---|---|---|
| Without the put | 40.39% | −80.5% |
| With the put | 40.82% | −59.8% |
Same rules, same contributions, put removed. The protection cut 20.7 points off the worst fall while adding 0.43 points of return. A hedge that pays for itself is the unusual part, and it is the reason this strategy is published at all. Unhedged, this is the underlying ETF with no cash buffer, and that is what its drawdown reflects.
A 60% drawdown happened, and will happen again
The worst peak-to-trough fall in this backtest was 59.8%. That is the number that decides whether a strategy is holdable, and it matters more than the return, because a strategy abandoned at the bottom returns nothing at all. This curve is marked daily, so the drawdown below is the real peak-to-trough figure rather than a sampled one.
Backtested and hypothetical, over one historical window, with the benefit of hindsight. Costs, taxes and slippage are modelled only where the module notes say so. Nothing here is advice, and no result is a forecast.